❝ President Donald Trump’s budget is premised on the projection that the United States will be able to raise its long-run economic growth rate to 3 percent a year. This rate allows the budget to assume large tax cuts and still project a balanced budget after ten years. This long-run forecast represents the largest divergence between an administration forecast and that of either the consensus forecast of the Blue Chip survey of private forecasters (2.0 percent) or that of the nonpartisan Congressional Budget Office (CBO, 1.9 percent) in many decades…
❝ To assess how likely the United States is to experience 3-percent growth over the next decade, I estimated the likely range of future potential GDP growth by taking random draws from the history of productivity growth rates, changes in the labor force participation rate, and changes in average hours worked… In running 10,000,000 simulations, the estimated median annual growth rate over the next decade was 1.8 percent, while the 90-percent confidence interval ran from 0.7 percent to 3.0 percent… The odds of the growth rate being at or above 3 percent are only 4 percent — essentially requiring the economy to repeat some of the fastest productivity growth it has seen over the past seven decades.
Not that our so-called president or most of his so-called advisors are likely to consider any of these scenarios in their ideology. Even those few individuals accustomed to this level of arithmetic will challenge the boss on facts. He doesn’t want facts. He wants answers which fit his 6th grade-level semantics, economics understanding and a demographic base even more ignorant.
Thanks, Barry Ritholtz
That’s the recipe for success in a globalized world, according to Magdalena Andersson, the Social Democratic economist who’s also Sweden’s finance minister.
The 50-year-old has been raising taxes and spending more on welfare since winning power in 2014. She’s also overseen an economic boom, with Swedish growth rates topping 4 percent early last year, that has turned budget deficits into surpluses.
❝ In a world still flinching from the financial crisis that hit a decade ago and the populist wave that followed, Sweden’s economic stewardship holds lessons that challenge the conventional wisdom in the U.S. on how taxes work, according to the Harvard-educated minister. Speaking in an interview in Stockholm, Andersson says success comes down to “three things: It’s the jobs, it’s our welfare and it’s our redistribution.”
❝ It’s the polar opposite of the policy being developed across the Atlantic, where U.S. President Donald Trump is hoping tax cuts, less regulation and new trade deals will produce 3 percent growth within two years. Meanwhile, in Europe, the Nordic model is attracting attention. Emmanuel Macron, who on Sunday defeated Front National’s Marine Le Pen in the French presidential election, has urged his country to look north for ideas on how to organize a society.
❝ Andersson, who lists health care and education, “regardless of how much you earn,” as key to running a successful economy, points to income redistribution as the shield that can keep populist shocks at bay…
The numbers are compelling. Sweden has one of the world’s highest tax burdens, with tax revenue about 43 percent of GDP, according to OECD data. The equivalent figure for the U.S. is about 26 percent. Sweden’s economy has grown almost twice as fast as America’s, expanding 3.1 percent last year, compared with 1.6 percent in the U.S….
Sweden has the highest labor force participation in the European Union. Andersson attributes this to tax-funded parental leave and affordable daycare, which make it easier for both parents to work.
In contrast to most of its European peers, Sweden has budget surpluses. The EU average will be a shortfall of 1.6 percent in 2018, while the estimated deficit in the U.S. of 5.7 percent of GDP…
Taxes are always negative for the folks required to pay the most taxes. Especially if you aren’t allowed loopholes by bought-and-paid-for politicians. Running a nation’s economy to benefit the whole population is nothing that would ever occur to most American politicians – regardless of how often they lie and say that’s exactly what they’re doing. Perish the fact that so-called trickle-down economics have never produced anything other than more wealth for fewer people. And screwed the rest of us.
❝ Autonomous ships will be great. Doing away with sailors will make the high seas safer and cleaner.
❝ It sounds like a ghost story: A huge cargo vessel sails up and down the Norwegian coast, silently going about its business, without a captain or crew in sight. But if all goes as planned, it’s actually the future of shipping.
❝ Last week, Kongsberg Gruppen ASA, a Norwegian maritime-technology firm, and Yara ASA, a fertilizer manufacturer, announced a partnership to build the world’s first fully autonomous cargo containership. Manned voyages will start in 2018, and in 2020 the Yara Birkeland will set sail all on its own. It’s the beginning of a revolution that should transform one of the world’s oldest and most conservative industries — and make global shipping safer, faster and cleaner than it’s ever been…
By one consultant’s estimate, moreover, carrying sailors accounts for 44 percent of a ship’s costs. That’s not just salaries: crew quarters, air-conditioning units, a bridge (which typically requires heavy ballast to ensure a ship’s balance) and other amenities take up valuable weight and space that might otherwise be used for cargo. And that dead weight contributes to a bigger problem: Maritime shipping accounts for about 2.5 percent of global greenhouse-gas emissions. Barring a radical change, those emissions are set to surge in the decades ahead.
❝ All this explains why eliminating a crew and its costs has been a long-time goal for companies and governments around the world. The most advanced effort so far has come from Rolls-Royce Holdings Plc, which rolled out a virtual-reality prototype of an autonomous ship in 2014. According to the company, the ship will be 5 percent lighter, and burn up to 15 percent less fuel, than a comparable vessel with humans aboard.
All the questions required of industries capable of full automation, essential automation, apply. They must begin with what is to be done to aid the human beings made redundant by the qualitative change which – after all – makes this industry more profitable, less expensive to operate?
The capitalists of Europe will probably follow guidance from enlightened geopolitical segments within their borders. Nations with at least a social-democratic bent. I would expect the same from China and those Asian nations with the courage to follow…perhaps, even lead.
Here in the United States? Silly question, eh? We live in a nation led by a political caste almost completely under the control of the least caring profiteers in the world. Short-sighted and arrogant, they really don’t care a rat’s ass about anyone fitting the broadest definition of proletarian. If you don’t own industry, you shall be politically subservient. From church to Congress, the Free Press to teachers who think they’re a 19th Century guild, obedience is the construct that counts. And Americans are, if anything, obedient cogs in the economy.
❝ Donald Trump…and his commerce secretary, Wilbur Ross, continue to commit an economic fallacy that first-year economics students learn to avoid. They claim that America’s current-account deficit (or trade deficit), which is in fact the result of America’s low and falling saving rate, is an indicator of unfair trade practices by Germany and China, two current-account surplus countries. Their embrace of economic ignorance could lead to disaster.
❝ The current-account balance, measuring the balance of trade in goods, services, net factor income, and transfer payments from abroad, is equal to national saving minus domestic investment. That’s not a theory. It’s an identity, save for any statistical discrepancy between gross national product (GDP) and gross national income (GNI). It’s true whether you are liberal or conservative, populist or mainstream, a Keynesian or a supply-sider. Even Trump and all his deal making can’t change that. Yet he is threatening a trade war because of deficits that reflect America’s own saving-investment imbalance.
❝ A country runs a current-account deficit if investment exceeds national saving, and runs a surplus when investment is less than national saving. For a country with a balanced current account, a deficit can arise if its investment rate rises, its saving rate falls, or some combination of the two occurs…
❝ Americans should not allow themselves to be fooled. The emperor has no clothes, imported or domestic; and, apparently, he has no competent economic advisers, either.
RTFA for more examples and illumination. I know Trump won’t.
Thanks, Ian Bremmer
It is urgent for Americans to think and speak clearly about President Trump’s inability to do either. This seems to be not a mere disinclination but a disability. It is not merely the result of intellectual sloth but of an untrained mind bereft of information and married to stratospheric self-confidence.
George Will is someone I often disagree with — on democratic equality, on economics. Realistically, he is close to what I’d call a traditional American conservative with a small “c” – so, he gets to include honesty, thoughtfulness about science as virtues.
RTFA for the rest of what he has to say about the charlatan in the White House – put in place by millions of our neighbors and friends who understand none of this.
Thanks, Barry Ritholtz
❝ It’s easy to blame all of the industry’s woes on Amazon, the online giant. There’s little doubt that the fifth-largest U.S. company by market cap has been disrupting traditional retailers…But online is far from the only source of retail’s problems: The large chains, the malls they usually find themselves in, and even flagship urban stores have failed to adapt to rapidly changing consumer tastes. This lag has been readily apparent for more than a decade.
❝ Note that this is not the product of hindsight; during the financial crisis, it was clear to me that “retail shopping will emerge from the recession with a much smaller footprint than before.” In 2010, I reiterated those views, observing that “the United States still has too large of a retail footprint — 40 square feet of retail space for each person; that is the most per person in the world … that needs to come down appreciably.”
❝ My present views are even less optimistic. We are probably closer to the beginning of that transition than the end. This is a generational realignment in the way consumers spend their discretionary dollars, and the ramifications and economic dislocations are going to last for decades.
❝ The build cycle. One aspect of the “overstored” issue is the mismatch between retail trends and the construction cycle. Trends change much faster than permits can be issued, buildings constructed and subsequently rented. That lag can be consequential.
Look at the growth in big malls since the 1990s. Forbes notes that “since 1995, the number of shopping centers in the U.S. has grown by more than 23 percent and the total gross leasable area by almost 30 percent, while the population has grown by less than 14 percent.” All of the retail construction reflected a very ’90s shopping perspective, one that’s considerably different today. It is more than just the rise of the internet: Sport shopping, retail therapy, and conspicuous consumption offer less prestige today than they once did.
❝ Bor-ing!…The wild success of the nearly 500 Apple stores provides lessons for other retailers. At $5,546 in sales per square foot, Apple sells more goods at retail than any other store in the world. The same exact products can be purchased at Best Buy, at Amazon, or even Apple’s own website. Yet the company has hit upon a formula that sends more than 1 million visitors per day worldwide into their retail locations with money to spend. (Surveys have shown that putting an Apple store in a mall increases sales 10 percent for all the other retailers.)…
❝ One last issue: price. Thanks to “showrooming” — checking out stuff in stores only to buy online after finding out how much less it costs — consumers have learned how stiff mark-ups can be in retail. When customers believe they’re overpaying, it does not lend itself to repeat business…
❝ Those warnings about excess retail space are almost a decade old. If anything, the existential threat to the consumer retail industries are even more acute today.
Most of Barry Ritholtz’s writing gets onto this site – when I feel it fits – pretty quickly. Been saving this one for more than a couple of weeks. Reports the past few weeks continue to bear out everything in this piece he wrote for Bloomberg in March. The great Howard Davidowitz matches Barry’s analysis with even more colorful language and greater forecasts of doom for shopping center and mall anchor stores.
Keep your eyes open for bargains at “Going Out Of Business” sales!
Bruce Bartlett helped draft the 1981 tax cut while on the staff of Rep. Jack Kemp of New York. The Kemp-Roth tax bill was the basis for this legislation. He is the author of Reaganomics: Supply-Side Economics in Action, published in 1981.
❝ Stymied by Congress’s failure to repeal Obamacare, President Trump hopes to get an easy legislative victory by turning again to the same well that Republicans have drunk from so often in the past—a big tax cut. All thoughts of fundamental tax reform appear to have been abandoned and the tax cut will simply add enormously to the deficit that Republicans railed against continuously when Barack Obama was in office.
❝ Republicans will make grandiose claims for the growth effect of their tax cut—Treasury Secretary Steve Mnuchin has said there will be so much additional growth that federal revenues will not fall because the economic pie will be so much bigger.
❝ We have heard such claims before and they proved to be groundless. Indeed, they are simply lies. The purpose of cutting taxes is not in fact to raise growth but to downsize government, which is an end in itself for Republicans, whether or not it raises growth. They believe there is only so much freedom to go around and when government gets bigger it necessarily comes at the expense of individual liberty. Therefore, cutting government is per se a good thing…
❝ As of 1988, the Economic Recovery Tax Act of 1981 reduced revenues by a total of $264.4 billion, according to Reagan’s last budget. Various tax increases took back $132.7 billion of that. I’ve always wondered how many Republicans who assert that higher growth from the tax cut paid for much of the cost of the tax cut are implicitly counting revenues from legislated tax increases in their calculations? It is my observation that few Republicans today know that Reagan ever raised taxes and most would be shocked to find out that he raised them a lot. The 1982 Tefra bill was the largest peacetime tax increase in American history…
❝ I would not deny that the 1981 tax cut stimulated economic growth to some extent, but Republicans have a tendency to attribute all of the increase in growth after 1981 to the tax cut, when in fact much of it was the normal bounce back from the economic recession that began in July 1981 and ended in November 1982, according to the nonpartisan National Bureau of Economic Research…
❝ Trump may be right that the Republican Congress will once again abandon any semblance of concern for the budget deficit and enact yet another budget-busting tax cut. But no one should be under any illusion that it will do much to raise economic growth or reduce unemployment — certainly not enough for the tax cut to pay for itself. That is a fairy tale at best and a rank lie at worst.
RTFA if you’re an economics geek, too. Lots of alleyways to examine. A forest of concern and craptastic Congressional blather to overcome. Bartlett’s credentials and experience is valuable. He’s not only been down this road before — he worked for the creeps who built it, mostly as an experiment that failed.
Thanks, Barry Ritholtz